Saturday, July 30, 2016

People including myself are relieved that the political conventions are over. Two weeks of calculated and scripted hyperbole will leave any sensible person fatigued, even if one ultimately agreed with most of the sentiments being expressed. But there is more to it this time when you look back at what our worries were going into the respective conventions. Dozens of delegates said they were going to Cleveland carrying arms and ammunition. Meanwhile, the event was surrounded by a city where effectively everyone was a victim of the same repressive policies that would be advocated inside the walls. It was a recipe for disaster — but there were no mass shootings. Similarly, in a party that had become synonymous with throwing people out on the street, might a VIP or party official be injured while being ejected? In fact, more than a few journalists were removed from the hall at points, but without injury or spectacle. The worrisome news of a disease outbreak at the convention added an unexpected angle of disaster, with the potential for a dangerous contagion to go national, yet with quick action on a quarantine, the disease was nearly contained within the California delegation. The next week Philadelphia hosted the largest number of demonstrators ever at a formal political event in U.S. history, yet with astute planning, there were no mass arrests. This is a good moment to remember the incredible sums of money put forward by national billionaire donors to buy the last Philadelphia mayoral election. This week might have turned out quite differently had that effort succeeded.

The sigh of relief is in part about the absence of the several disasters that so easily could have occurred. There is some dismay in saying this. Are our expectations of the American political process so lowered that merely not seeing a mass shooting by one of the gun nut delegates is cause for celebration? And yet in reality we did avoid each of these potential disasters. These was not just good luck. A combined and cumulative effort involving thousands of people also had a part in the two relatively peaceful weeks. There is reason to hope that with a continued effort this relative peace could hold right on through November. Yes, the current state of U.S. politics is unexplainable and inexcusable by the standards of just 15 years in the future. In fact, a significant fraction of voters have already made that leap and are trying to explain to us how broken the system is. From their point of view, looking at the events of the past two weeks is agonizing. And they’re right to see it that way. But let’s not lose sight of what just happened.

Friday, July 29, 2016

EU stress tests were released tonight. The tests estimated how well a bank’s capital would stand up to a one-dimensional economic shock in 2018. The modeled stress is more substantial than a run-of-the-mill recession, but not by much. There were few surprises in the results. However:

Monte dei Paschi, the third largest bank in Italy and the only bank in Europe likely to be wiped out by the moderate economic shock modeled in the tests, announced a rescue package in which it will sell €9 billion in bad business loans while adding new capital. The small size of the rescue plan suggests that the bank may need a new rescue next year.

Italy, Spain, and Ireland were the only countries that fared poorly in the tests. The top two banks in Ireland did well enough that they can continue to repay past bailout funds.

Banco Popular, the sixth largest bank in Spain, fired its top executive before the test results were released to the public.

RBS, with the most problematic result in Britain, said its test results showed progress on its rebuilding plan.

Sentenced: Three former executives in Ireland, two at Anglo Irish Bank and the other at Irish Life and Permanent, were sentenced for a scheme to create €7.2 billion in phantom deposits on the bank’s balance sheet. Each was sentenced to between 2 and 3.5 years. The purpose of the scheme was to make the bank appear financially sound when in fact it was on the edge of insolvency.

Saturday, July 23, 2016

The predictions of a prolonged recession in the U.K. after word of its exit from the EU were, at least, greatly exaggerated. On the far corner of Europe, though, Turkey really is heading into a recession. The military coup attempt did more damage than the world knew at the time, and the political crackdown now underway has already come perilously close to shutting down the economy. Roughly 100,000 workers have been fired or arrested or have had their licenses to work revoked. So many education workers were removed that schools and universities are effectively not operating. The state of emergency and general turmoil will keep most foreign tourists out of the country for months or years. A weakened military will probably no longer be able to protect the most volatile border zones. Banks and large businesses may not be able to issue bonds for several years. These are not trivial adjustments in an economic sense. Fortunately, the political crackdown has spared agriculture and public utilities. With food and water, there is an opening for the country to survive the tough times ahead and eventually start on the way back to normal.

Friday, July 22, 2016

The Republican platform calls for legislation to separate banking, investments, and insurance. That would return the banking business to the more stable and efficient way it operated before 1999.

Turkey’s central bank is providing emergency liquidity to banks. The country’s economy is reeling from political instability and a subsequent crackdown on dissenters and academics, and for now it is impossible for banks to raise funds by issuing bonds.

Arrested: a senior manager at HSBC, charged in the U.S. with manipulating currency markets in 2011.

Seized: A U.S. investigation has located close to $1 billion of the $4 billion missing from 1MDB. The lost money was found in the accounts of the prime minister of Malaysia, who previously served as a director of the fund but was removed when the magnitude of the missing money was understood. Half of that money was used to buy art at auctions. U.S. authorities moved to seize the related assets located in the U.S. The prime minister has previously said he legitimately earned the commissions he received from the fund.

Monday, July 18, 2016

There may be a mechanism to explain the cases of autism that improve with organic food. It is speculative, but all the major pieces are there. It has long been known that conditions in the intestine affect the immune system. This makes sense since the intestine is essentially the headquarters of the immune system. New research shows that the immune system modulates brain functions that determine perceptions and behavior, at least in mice. It is a fair guess, then, that certain agricultural chemicals in food could have an impact on the immune system that would lead to decreased levels of certain brain functions. If so, removing the chemical load by eating organic food would tend to restore those same brain functions. Obviously, a lot of details are missing here, but the discoveries lend credence to the anecdotes about autism improving with organic food, elevating it from the level of anything-is-possible to might-be-worth-a-try.

Another intriguing result of the recent research is the thought that autism and schizophrenia could have some mechanisms in common. One theory briefly considered historically was that the agricultural chemical DDT was the cause of schizophrenia. No convincing mechanism was ever found, but the incidence of schizophrenia dropped at the same time that DDT was phased out. Of course, there were other chemicals that were used and abandoned in the same historical period, so the culprit could just as easily be another chemical rather than DDT. It may be time to take a new look at all diseases of brain function now that the immune system is a confirmed part of the brain function puzzle.

Sunday, July 17, 2016

The news headlines have been dripping in blood this month, and the parade of horror has taken a psychological toll on readers and viewers. These are some thoughts for dealing with what may be an overload of bad news.

Don’t try too hard to understand or rationalize emotional reactions to the various disasters — yours or anyone else’s. For any story, some people will hear it with more immediacy than others. It is difficult and probably impossible to say that one reaction is more correct than the other. Your own reactions to different stories might seem inconsistent, but the differences are based on details of your psychological triggers that you couldn’t possibly figure out on the spot. Fortunately, this is not important. Seeking consistency in your reactions can lead to soul-searching questions such as, “Why do I react one way to an event that affects rail passengers and a different way to an event that affects striking port workers?” If you have to search your soul, this is totally not the way to go about it. Just accept that your own reaction to unexpected news of violence will not make any more sense than the violent events themselves. If you can’t hope to understand your own reactions, there is also nothing to be gained by criticizing others’ reactions or lack thereof.

If you are already upset by the story, don’t watch the video. To be sure, for every video that ends in violent death, there is someone somewhere who is obliged to watch it. In almost every case, though, that person is not you. Allow others to watch the video and trust that their short descriptions of the content will be accurate enough. Watching TV news, you don’t control what shows up on the screen from moment to moment, but you can guess how long a video clip will be. Close your eyes for that length of time and ten seconds more.

If there is too much bad news, tune out the more distant stories and focus closer to home.Keep watching the news if you personally may have to evacuate or seek shelter for your own safety. If a disaster is unfolding in the town where you live or work, follow the details as well as you can, especially if there may be a way you can provide assistance. If a disaster story does not require an urgent action on your part, it won’t cause a problem if you put off looking at the story until you feel ready.

Don’t connect the dots. Two events that show up on your screen around the same time will tend to seem connected even when they aren’t. There is little harm in finding trends at the most superficial level (“There seems to be a lot of violent news this month”) but don’t waste brain cells and risk embarrassing yourself concocting theories to connect events that, seen from a distance, are probably related to each other only in a much more general sense. Most of all, don’t jump to the conclusion that the disaster news will continue indefinitely and keep getting worse. All this bad news is not the end of the world. That thought is just another version of the same connect-the-dots theory.

Reducing the emotional impact of disaster news is only the first step. You and the people around you may also need a way to recover from the shock of the news. That may be so even if everyone seems to take the news well enough on first hearing it. There are many approaches to recovering from the shock of bad news, but the key to all of them is sufficient sleep. Therefore, don’t stay up late into the night watching disaster news coverage that is just repeating the same summary every half hour with little new information. Turn off the news at least an hour before you might want to go to sleep to reduce the risks of insomnia and nightmares. Sleep and dream of something different. Tomorrow is another day.

Friday, July 15, 2016

As Europe awaits stress test results, the focus of worry has shifted from Britain to Germany’s Deutsche Bank and Italy’s Monte dei Paschi. Both banks have problems with their respective business models, and worsening troubles at either could have ripple effects. A liquidity crisis at Deutsche Bank could force a pause in global transaction processing. The closure of Monte dei Paschi could lead to the failures of two or three other large banks in Italy, perhaps causing a political crisis.

When U.S. real estate hit bottom in 2010, more than a fourth of home mortgages were underwater, with homeowners owing more than their properties were worth. With recovering property values and the effect of six years of regular payments, not to mention a record-setting wave of bankruptcies and foreclosures, that rate has declined to 1 in 18. That’s a big improvement but still a long way from the 1 in 100 to 1 in 200 mortgages that would be underwater in a healthy real estate and lending market.

Cuts: As part of its pending acquisition of First Niagara, KeyBank will close 9 percent of the two banks’ branches. Especially in upstate New York, there are many places where the two banks have branches within blocks of each other. KeyBank says there will not be layoffs as branches are consolidated.

Sharing branches for the past nine years hasn’t worked as well as hoped for seven Kansas City banks with 44 branches, so they will be merging and keeping the name of one of the banks, Security Bank of Kansas City. The combined bank will keep all branches and all employees.

Responding to a nationwide economic crisis in Venezuela, Citibank is closing the central bank’s foreign currency accounts. Citibank did not state a reason, but the bank could have decided it could no longer afford the liquidity risks the accounts represented.

Wednesday, July 13, 2016

Microsoft said this week it is closing its Microsoft Mobile Oy design lab in Finland. With that, a six-year, $25 billion experiment in smart phones with Nokia designs and Microsoft operating systems has faded to essentially nothing.

Microsoft layoffs targeting Finland were originally announced May 25, and Microsoft confirmed that it is closing its facility in Finland and laying off all 1,350 workers there, along with 500 workers in other countries. Nokia’s sales tumbled and losses piled up as soon as it adopted the Windows Phone operating system in 2011, and the problems only got worse after Microsoft took over out the handset business in 2014. Windows Phone devices are still on the market but hold less than 1 percent market share despite selling for less than the cost of manufacturing. The platform is plagued by software incompatibilities, emblematic of a product experiment that had big ideas and a big budget but never took the time to get the details right. Microsoft’s Windows Phone division officially still exists, but based on company statements, it will focus mainly on wi-fi devices used by workers in warehouses and other industrial facilities.

Russia’s economy might be reeling from decisions made in Moscow, but the country has a sneaking suspicion that other countries are behind its problems. The result: Russia is pulling back from the outside world. This month the Kremlin has ordered the last-minute cancellation of two music festivals. The apparent reason: some of the scheduled performers were arriving in the country from performances in Ukraine, a country that Russia is particularly unhappy with right now. At the same time, Russia seized encrypted servers belonging to a foreign VPN provider, forcing that company out of the country. New espionage laws in Russia appear to make not just VPNs but all Internet routers illegal, but the enforcement of the law seems to target only services used to communicate between Russia and other countries in Europe.

Russia’s withdrawal from the global economy is puzzling in some ways. This is a country that could be economically self-sufficient but instead is heavily dependent on imports for things as basic as fruit and vegetables, while it operates an economy built on oil exports. Polls, though, show plenty of voter support for isolationism. This trend has come about during a period of relatively benign weather in Russia. The next summer-long drought, whenever it occurs, may test Russia’s collective resolve to go it alone. In a drought Russia may be forced to import wheat. If the inevitable food imports are done under the table with official denials, that will be a sign that Russia is in no mood to rejoin the party.

Friday, July 8, 2016

The post-Brexit decline in London banking threatens to burst the London real estate bubble, but investors cannot all cash out of their real estate at once. Standard Life Investments UK Real Estate Fund suspended redemptions on Monday, and within two days a dozen other property funds followed. Real estate is not a liquid investment on any business day, so it could be three years before investors can take all their money out. Meanwhile, foreign investors who have a high risk tolerance are snapping up London real estate that is suddenly cheaper because of the decline in the British pound.

German state-owned shipping lender Bremer Landesbank has €400 million in nonperforming loans and desperately needs capital, but the two states that own 96 percent of the bank have not been able to find a workable rescue formula.

Brazilian police say they have questioned employees and an executive of Panama-based FPB Bank in connection with money taken from state-owned oil company Petrobras. Investigators followed leads obtained from the Panama Papers leak. Prosecutors say the bank was carrying on a clandestine operation in Brazil to make it more difficult to trace large money transfers. FPB Bank in a statement says this is all a big mistake. It has no operations or workers in Brazil and no employees have been questioned, it says.

Regulators replaced executives and directors of Skye Bank, the eighth largest bank in Nigeria. The bank had failed to meet liquidity requirements over an extended period of time.

A former UBS employee has pleaded guilty in a tax fraud scheme in France. The bank, which also faces a possible criminal trial later this year, says it was not involved in the scheme.

Thursday, July 7, 2016

Brazil is one step closer to sanity tonight as the lower house speaker resigned his post. Publicly seen as the country’s most corrupt political figure, Eduardo Cunha now may be just months away from going to jail, though a series of administrative steps have to occur before he can stand trial. Aside from his role as a ringleader of government corruption, Cunha was a fount of negativity and religious extremism in his brief stint as speaker. One of the nightmare scenarios in Brazil’s corruption scandal was the possibility that Cunha might become president. Though the corruption problems are far from solved, the country can breathe a sigh of relief tonight.

Tuesday, July 5, 2016

The Fort McMurray fire is now listed as “under control,” and large areas of the fire are actually out after a series of rain events. The most remote parts of the fire zone got less rain, and there, areas of forest continue to burn, though the current fire perimeter is expected to contain the hot spots. The fire eventually expanded to nearly 600,000 hectares in Alberta and Saskatchewan, making it the largest fire in North America this year. Sooner or later, more rain or the cold weather of fall will put the fire out.

Monday, July 4, 2016

Last week we lost Alvin Toffler. A sociologist and economist, Toffler is best remembered as the author of the bestseller Future Shock, which was simultaneously a celebration of change and a warning about what can happen to people if change proceeds unchecked. Toffler was a futurist who considered the consequences of current actions in terms of their impact on a future that, before anyone sets about intentionally changing it, is already destined to be different from the present and the past. This focus on the future is still a radical departure in a world where official plans are still based on a view of the world that may be ten or twenty years or a lifetime out of date, like generals aiming bombs where the enemy positions were in the last war.

Reading Future Shock as a pre-teen forever changed the way I thought about my own life and the events of the world. Aiming my work toward the future became second nature. This was a necessity when I began writing computer books. Writing an up-to-date computer book is harder than it looks because of the book industry’s insistence that everything be planned two years in advance. The two-year planning horizon is long enough for the computer industry to be turned on its head. How do you stay relevant in a tech world where your product may be obsolete before the public gets to see it? My future orientation and assessment of trends were capable enough to allow three of my many tech book releases to look like the next big thing a full two years after I had originally written them.

Toffler coined hundreds of words, but prosumer comes to mind as his billion-dollar word. Toffler originally coined the word to highlight the blurring economic lines between the producer and consumer of a product. The word soon came to identify an product level that might be used by one of Toffler’s prosumers. The prosumer audio equipment that I work with every day produces professional-quality results but may lack the sturdiness, ease of use, or other qualities that would be assumed in pro equipment costing twice as much.

Toffler warned against linear thinking. The future, he said, will not unfold smoothly in the direction we have come to expect. Trends can get out of sync leading to reversals that last for decades. Prediction is difficult, and Toffler specifically warned (ten years ago) against the overconfidence of oil-funded governments and others whose planning depended too heavily on any single trend. It is not enough, he said, to look for the single most obvious recent trend and take it into account:

It is useful to reserve at least a speck of mind space for thinking the unthinkable, for history is little more than a sequence of high-impact events that began as utterly improbable and exploded into actuality.

That is a point well taken on Independence Day. It is because the Declaration of Independence was so improbable that it is remembered centuries later. The future will take us by surprise again no matter how well we prepare for it.

Friday, July 1, 2016

The European Union is still all anyone can talk about, Brexit, lunch, and dinner, but it has become clear that the early assessments of the impact of the departure of the United Kingdom were greatly exaggerated. A scary global stock selloff reversed as quickly as it occurred. Financial stocks did not come all the way back, though, and it is Italian banks, RBS, and Asian banks with operational centers in London that carry the lingering impact of the British referendum result.

Insider predictions of rapid bank layoffs did not come to pass, though there are worldwide hiring freezes and similar defensive measures in the investment arms of 20 global banks. The course of the British exit from the European Union will probably be known by the end of this year, but it could be a process gradual enough that the 20 to 30 percent staffing cuts required in London banking could be met mainly through pay freezes and attrition.

Banks in Italy were living on the edge before the Brexit vote and now look desperate for capital with no clear path to obtaining it. The EU has reportedly approved a temporary measure by Italy to backstop bank liquidity in the event of a market meltdown. It is not nearly enough, but it was the best Italy could do. A plan to recapitalize the banks with government backing did not meet EU rules. Italian bank stocks declined so much this week that it is now hard to imagine setting the banks right using private capital.

There is speculation about Italy exploring an EU exit of its own if needed to save its banks, and there are rumblings from four other countries that would seem to cast doubt over the EU’s future. The U.K. will need to select a new prime minister and get its strategy together before it can negotiate directly with the EU, and even then, U.K. leaders might be driven to drag out the process because of some EU officials’ insistence on punishing the U.K. for its decision to leave. Complicating this, a trade wall against the U.K. would damage every EU country in one way or another, so the debate about the U.K.’s exit terms could itself be a wedge splitting the EU. Even if an agreement can eventually be reached, the negativity of the Britain question may cast a shadow over the EU through 2017. In the middle of this crisis, Germany has taken a particularly inflexible stance, saying that no rules can be bent and no problems can be solved. Yet as it stands, Germany is the only country that has much to lose economically if the EU were to dissolve. Politically, to survive, the EU must be seen as “a force for good” not just by every member country, but by the majority of people in each country. That failed in the U.K. partly because of domestic politics and government policies to redistribute wealth from workers to billionaire-investors, but there was more to it than that. Nearly 40 percent of the net new jobs in the U.K. during the last three years were awarded to foreigners. That is, in retrospect, a politically unworkable formula in a country that faced a chronically weak labor market. Political support for the EU is a particular problem in France, where the EU never enjoyed majority voter support, but it is potentially a problem in any member country.

Adding to the fragility of the situation, Finnish finance minister Alexander Stubb has returned to private life and can no longer be called upon to persuade European ministers to think rationally and systematically when faced with what looks like an insoluble problem. It will be a new era if the European Union turns into the European Argument, but tonight it seems there is a real risk of that happening.